5 Assumptions

5.1 Economic assumptions

The market consistent calibration of the economic scenarios is based on traded market instruments
at the valuation date wherever possible. This includes nominal and real yield curves, interest rate
volatility and equity volatilities. Where market data is not available or the market is not liquid
enough, the model calibration is based on best estimate assumptions. This notably includes
correlations, exchange rate volatilities and real estate volatilities.

5.1.1 Reference rates
The reference rates used for the calculation of the MCEV 2015 are based on the swap rates as at
31 December 2015 and include, where appropriate, a liquidity premium. Extrapolation of the
interest curves and determination of liquidity premiums closely follow the QIS 5 framework.

We apply no liquidity premium to unit-linked, portfolio-linked and variable annuities business,
50% of the underlying liquidity premium to health insurance and assumed external reinsurance,
and 75% to all participating and other businesses, including traditional annuities. Liquidity
premiums are applied over a term of 10 years for Swiss franc, 15 years for euro and 30 years for
US dollar, and phased out over the following five years.

As some of Swiss Life’s liabilities are running longer than asset durations are available on financial
markets in sufficient depth and liquidity, an extrapolation of yields is applied to assess swap
rates beyond this horizon. Swiss Life uses the approach for extrapolation prescribed by EIOPA
for QIS 5.

The spread (over swap rates) applied for the valuation of the hybrid debt was updated based on a
subordinated bond index and amounts to 319bp as at 31 December 2015. For the opening MCEV
the spread amounted to 287bp.

The whole yield curve is shifted for the 100bp increase/decrease in reference rate sensitivity
including the extrapolated part beyond terms where market data is used for calibration of the
reference rates.

5.1.1.3 100% Liquidity premium, relative to swap rates, as at 31 December 2015 and 31 December 2014

5.1.2 Volatility assumptions
Volatility assumptions for the year-end 2015 and 2014 calculations are derived from market data
as at 31 December 2015 and 2014.

The interest rate volatilities are based on implied volatilities of at-the-money receiver swaptions.
The tables below show rates for euro and US dollar with 20-year tenors and rates for Swiss franc
with 10-year tenors.

5.1.2.3 Equity option implied volatilities as at 31 December 2015 and 31 December 2014

Volatility

Volatility

Economy

Index

2015

2014

Switzerland

SMI

18.1%

18.5%

Euro Zone

EuroStoxx 50

21.6%

20.8%

United States

S&P500

26.8%

25.9%

The property volatilities are based on best estimate assumptions considering historical data.

5.1.2.4 Property volatilities used for the calculation as at 31 December 2015 and 31 December 2014

Volatility

Volatility

Economy

2015

2014

Switzerland

8.0%

8.0%

Euro Zone

13.0%

13.0%

5.1.3 Correlation assumptions
The correlation assumptions between different asset classes are based on historical market data.
The correlations between returns on equities and on 10-year zero coupon bonds are assumed to
be 15% for 2015 and for 2014.

5.1.4 Inflation assumptions
The inflation assumptions have been derived from inflation-linked bond prices, where inflationlinked
bonds are traded. For the Swiss economy, the real interest rate model is calibrated on the
inflation forecast by Consensus Economics, an international economic survey organisation.

5.1.4.1 Forward inflation rates used for the calculation as at 31 December 2015

Economy

1 year

2 year

5 year

10 year

15 year

30 year

Switzerland

-0.1%

-0.1%

-0.2%

0.6%

0.8%

0.7%

Euro Zone

1.2%

0.7%

0.8%

1.6%

1.7%

1.0%

5.1.4.2 Forward inflation rates used for the calculation as at 31 December 2014

Economy

1 year

2 year

5 year

10 year

15 year

30 year

Switzerland

0.1%

-0.1%

-0.2%

0.5%

0.7%

0.4%

Euro Zone

0.1%

0.3%

0.9%

1.6%

1.6%

0.9%

5.1.5 Real world assumptions
These assumptions are used for the step “expected existing business contribution in excess of reference rates”.

For fixed interest assets, the “real world” investment return assumptions are based on the gross
redemption yield on the assets less a rating-dependent allowance for expected defaults derived
from historical data.

Fixed risk premiums are used for other risky assets. Return assumptions for equity and property
are derived from the 10-year swap rates, plus a risk premium; see table 5.1.5.1 below.

5.1.5.1 Equity and property assumptions for real world projection

Risk premiums by asset class

2015

2014

Equity

400bp

400bp

Property (Switzerland and Europe)

200bp

200bp

5.2 Taxation and legislation

Tax assumptions for the projection of annual results have been set in line with the local tax regime.
Tax losses carried forward are considered. Taxation rules are based on individual companies’
total results. Tax impact of future new business has not been allowed for. The following table 5.2.1
shows the corporate tax rates applied.

5.2.1 Tax assumptions

2015

2014

Switzerland

21.1%

21.1%

France

34.4%

34.4%1

Germany

28.3%

28.3%

Luxembourg

20.0%

22.0%

Liechtenstein

12.5%

12.5%

Singapore

17.0%

17.0%

1 Following French legislation the tax rate assumption applied for 2015 is 38.0%.

5.3 Operating assumptions

Non-economic assumptions such as mortality, morbidity and lapse rates have been determined
by the respective business units based on their best estimate as at the valuation date. Best estimate
assumptions are set by considering past and current experience.

Expense assumptions are reconciled with past and current experience. They do not account for
future cost reductions. Projected expenses are subject to inflation. All the expected expense overruns
affecting the covered business, such as overhead expenses and development costs in new
markets, have been allowed for in the calculations. Corporate costs are included in the expenses
of market units by means of a “look-through” procedure (see section 4.6).